Mar 21, 2018 - Economy & Business

Trade war brews as China draws up Trump tariff reprisal list

Taizhou Port, China. Photo by Yang Bo / China News Service / VCG / Getty

For decades, western companies have griped that Beijing is forcing them to hand over tech secrets and source code as a price of access to the Chinese market. Now they have a White House prepared to act forcefully to stop it — starting tomorrow, Axios' Jonathan Swan reports — but the fear is a costly tit-for-tat trade war.

The big picture: President Trump plans to announce tentative tariffs, allow a comment period for industry and other players, then enact the sanctions, report Bloomberg's Andrew Mayeda and Jennifer Jacobs. But China is drawing up a reprisal list that includes soybeans, sorghum and live hogs, report the WSJ's Lingling Wei, Yoko Kubota and Liza Lin.

In a March 18 letter, a broad section of U.S. companies and trade associations urged Trump not to proceed with the tariffs, but to find another route to the same objectives.

The background: For Beijing, the demand for tech secrets is part of its pathway to an advanced economy in order to keep delivering economic growth to the Chinese people, says Mary Lovely, an economics professor at Syracuse University. "Political stability is the key," she tells Axios.

  • This is not something new: Starting in the 1930s, the Soviets, under Stalin, developed their industrial base by inviting American and German companies to build steel mills, railroads and dams, then kicked them out.
  • In the Chinese version of the squeeze, Beijing began to demand tech secrets under Deng Xiaoping in the early 1980s.

Josh Kallmer, senior vice president of global policy at the Information Technology Industry Council, says the U.S. solution should be carried out cooperatively with Europe and Japan.

"We want to have Chinese cease requiring the transfer of intellectual property from our companies as a condition for doing business in China."
— Josh Kallmer

One solution is to mirror Chinese practice — say to demand that Huawei, as a price of doing business in the U.S., form a joint venture with a U.S. company and transfer its source code, said James Andrew Lewis, a tech and China expert at the Center for Strategic and International Studies.

"The Chinese do fear reciprocity. When you mention it, you can just see them go rigid."
— James Andrew Lewis

A problem is that this is more of less a bluff — "we would be turning over nine times as much as they would," Lewis says.

Another potential solution was proposed in November by Texas Sen. Jon Cornyn and California Sen. Diane Feinstein. They introduced a bill under which certain tech transfers would undergo greater scrutiny by the Committee on Foreign Investment.

"Whatever we do, we are playing catchup," Lewis said, since technology for commercial planes, cars, batteries and other goods has already been turned into exportable products by the Chinese.

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